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Need to focus on changing power generation mix

The new government will have to focus on changing the power generation mix and tilt towards cheaper sources, such as hydel and coal, in order to create a long-term solution to power crisis, analysts said.

Hasan Raza, a research analyst at Taurus Securities, said that as a short term strategy the government could increase power tariff by Rs3.5 per unit to minimise circular debt, which has an adverse impact on power generation and fuel supply issues with Pakistan State Oil, etc.

“As a short-term strategy, imported coal could be used for convertible fuel-based plants on coal, which costs half as much as thermal,” he said.

“This will also help reduce power costs and bridge the gap of recovery losses. Average generation cost will be around Rs9.0, which will reduce government subsidy.”

He added that as the long-term strategy Thar coal could be utilised, while hydel sources without constructing dams and reservoirs could also be an option to reduce the cost of power generation.

“However, these are capital-intensive projects for which proper planning is needed,” he added.

Sana Abdullah at Global Securities said that the only long-term solution to the issue, apart from increasing the power tariff, is to move towards cheaper alternative fuels, such as coal and hydel.

“The PML-N is headed in the right direction as they have expressed their intention to invite investments in the power sector, focusing on coal-based power plants,” she said. “We believe that the government will need at least two years before we see any major change in the fuel mix.

Till then we feel that the energy chain companies are likely to bear the brunt of the cash flow crisis.”

Contrary to global patterns, hydel and oil are the two largest sources of power generation in Pakistan with ratios of 35.92 percent and 34.30 percent, respectively.

The share of coal for power generation stands at a meager 0.11 percent.

In spite of being the biggest source of power generation in Pakistan, gas reservoirs are fast depleting in the country.

Meanwhile, the share of nuclear power generation is only 3.96 percent. “Pakistan spends billions of rupees on importing oil, which has an impact on the country’s economy.

Although, the country is blessed with vast rivers, lack of planning to construct new dams in the past has cost us dearly,” Raza said.

He added that the only solution lies in decreasing the share of oil in power generation. In this regard, the first and foremost step is to convert old fuel-based plants to coal. Not only will this save billions of rupees for the country but also end incessant power outages. The new government needs to formulate both long and short solutions to resolve this issue.